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Carriers regain control of rate setting: report

Posted: February 11, 2015

ST. LOUIS, MO- The U.S. economy is on solid ground and bringing higher transportation costs, according to Rosalyn Wilson, supply chain expert and senior business analyst with the management services firm Parsons.

“With carriers gaining more control over rates and capacity tightening, total freight spend in 2014 was higher than in any preceding year,” Wilson said. “As long as capacity remains precariously balanced, we will continue to see a slow trend upwards.”

Parsons’ Cass Freight Index, which measures trends in North American shipping activity based on $23 billion in paid freight expenses for hundreds of large shippers, showed shipment volumes and freight spending both dropped in January, but were at their highest level for the month in three years.

The number of shipments fell 4.7 percent from December, but gained 2.7 percent over last year’s numbers, with the January shipments index at its highest level for the month since January 2012.

Freight spending continued falling for the third consecutive month in January, dropping 5.7 percent from December, but was three percent higher compared to the same time in 2014 and was the highest January index level on record for expenditures.

When it comes to the decline in freight expenditures, Wilson said much of it can be attributed to the fall in the number of shipments, while also partially due to the weak freight market which held rates in check.

“When the economy picks up later this year we should see a steeper rise in total dollars spent, reflecting higher freight rates,” she said. “It is important to note that freight volume has not yet returned to pre-recession levels, but that spending on freight is substantially higher than it was in 2007.”

Wilson said numbers show declines in U.S. manufacturing in terms of new orders and order backlog, though not unexpected for January, which could signal more than a temporary drop in shipments in coming months.

“It is also good news for carriers, as most of the industry is in agreement that the ability to control rates is shifting back into the hands of carriers and that rate increases will be significant. However, sustained growth in 2015 will exacerbate the capacity problems experienced in 2014,” Wilson said. “Carriers do not currently have the necessary capacity, infrastructure and systems to efficiently move goods as freight volume rises in 2015.”

Bad weather; labor problems; fleet capacity issues for truck, rail and other equipment, especially container chassis; and inadequate infrastructure will combine to not only create new freight bottlenecks, but also to push up the cost to move freight, according to Wilson.

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